The trade-offs young people make to buy a home

Alex Ayscough has two tips for young people looking to buy their own place: be ready to move fast, and don’t go to auctions.

The 28-year-old who works in banking thought she had “no hope” of getting into the property market after being massively outbid at auctions.

“Auctions are awful and soul-destroying,” Ms Ayscough said. “There are heaps of people with more firepower than you.”

The advice comes as young people are doubling up on their debt, relying on two incomes, moving further out and choosing flats over houses, just so they can gain a foothold in the sky-rocketing property market.

Less than half of 25- to 34-year-olds now own their own home, compared to 61 per cent in 1981, according to a report by the Australian Housing and Urban Research Institute.

However, researchers say the fall was less than it could have been, because young people are making lifestyle trade-offs so they can still achieve their dream of home ownership.

“A number of adaptive [behaviours] appear to have enabled more households than might have been expected to sustain ownership,” the report, Generational Change in Home Purchase Opportunity in Australia, concluded.

Sydney house prices have soared 410 per cent in the past two decades, while Melbourne house prices have risen 417 per cent, figures from the Domain Group show. The median house price in Sydney passed $1 million earlier this year, while in Melbourne it is now $668,000.

To afford property young people are taking on nearly double the amount of debt that previous generations did. In 1981 the median mortgage was 17 per cent of household income; today it accounts for 27 per cent of household income.

“For today’s generation it is twice as hard [to buy a home],” AHURI director Wendy Stone said. “They are entering home ownership at any price.”

Ms Ayscough’s father helped fund the deposit for the one-bedroom apartment she eventually bought. She paid $505,000 for the property sold by Laing + Simmons in June.

“I’m lucky,” Ms Ayscough said. “I’ve got a decent job that pays well and Dad was willing to make up the difference. The bank of Dad was a big factor in helping me buy.”

After going to the first open house for the Bayswater Road property, she made an offer in the car on the way home, and had concluded the purchase that afternoon, with her father contributing about 10 per cent of the deposit.

Ms Ayscough said it was “pretty tough” for young singles to get into the property market. “It’s a hard matrix to line up, to find something you can afford, somewhere that you want to live and something that’s not complete crap.”

The proportion of young people who own their homes outright has collapsed this century, from 11 per cent in 2001 to 5 per cent in 2011.

Swinburne Professor of Housing, Terry Burke, who co-authored the report, said the high levels of debt increased the likelihood today’s young people would enter retirement without having paid off their mortgage, and could struggle to survive on the pension.

“Potentially society might have to rethink income support in 15 to 20 years’ time if people have not transitioned to outright ownership by the time they retire,” Professor Burke said.

Two incomes have become almost a necessity for young people to afford a home. Single income households accounted for only 15 per cent of home purchases by 25 – 34-year-olds in 2011, compared to half of all purchases in 1981.

“In order to afford a home now, it is critical to have dual incomes,” Dr Stone said. “This has massive implications for partnering and child bearing, and the need to have both men and women in the workforce.”

Parents are increasingly helping their children finance property purchases. Dr Stone said there was also an emerging trend of siblings and friends linking up to buy property together.

Young people are being forced to buy apartments rather than houses, and move further away from the city centre. Units now account for 20 per cent of property purchases by 25 – 34-year-olds, compared with just 5 per cent in 1981. The median price of a Sydney apartment is $656,000, while in Melbourne it is $444,000.

The proportion of young people with children buying houses has plunged over the last 30 years, from 70 per cent to 53 per cent. However, researchers believe this is due more to changing fertility trends than affordability issues.